The bone morphogenetic proteins (BMPs) profoundly affect embryonic development, differentiation and disease. BMP signaling is suppressed by cysteine-rich domain proteins, such as chordin, that sequester ligands from the BMP receptor. We describe a novel protein, KCP, with 18 cysteine-rich domains. Unlike chordin, KCP enhances BMP signaling in a paracrine manner. Smad1-dependent transcription and phosphorylated Smad1 (P-Smad1) levels are increased, as KCP binds to BMP7 and enhances binding to the type I receptor. In vivo, Kcp^−/− mice are viable and fertile. Because BMPs have a pivotal role in renal disease, we examined the phenotype of Kcp^−/− mice in two different models of renal injury. Kcp^−/− animals show reduced levels of P-Smad1, are more susceptible to developing renal interstitial fibrosis, are more sensitive to tubular injury and show substantial pathology after recovery. The data indicate an important role for KCP in attenuating the pathology of renal fibrotic disease.